The stimulus program will end sooner than first thought — and most economists on the Federal Open Market Committee now expect three interest rate rises next year.
Bitcoin jumped on Wednesday after the Federal Reserve confirmed that it plans to cut its stimulus program faster than previously thought.
The central bank is planning to fully withdraw its measures — introduced because of the coronavirus pandemic — by March.
And this could pave the way for interest rates to increase in 2022, with most economists on the Federal Open Market Committee expecting three such rises next year.
Bitcoin had been trading nervously in the run-up to the Fed's announcement — but spiked from $47,800 to $49,400 as the central bank's chairman, Jerome Powell, delivered a press briefing.
The Fed has had little choice but to abruptly change course in the face of soaring inflation. The Consumer Price Index in the U.S. hit 6.8% in November — the biggest jump seen since 1982.
But there are concerns that the stock markets, as well as Bitcoin, could suffer pullback as the Fed moves to turn off the money taps.
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The Fed's move to cut stimulus is hardly surprising — and Powell had made repeated warnings that this was likely in recent weeks.
As a result, you could argue that this was a case of "sell the rumor, buy the news" for BTC.
At the time of writing, Bitcoin is up 2.09% — but Ether is outperforming with gains of 5.49%, while the likes of Solana and Avalanche are up 12.7% and 18.3% respectively.
The Fed's main interest rate has remained unchanged at between 0% and 0.25%, yet other central banks have started to take action.
One of them is the Bank of England, which has now increased interest rates from 0.1% to 0.25%.
BTC remains stubbornly pinned below $50,000 at the time of writing — and $53,000 is regarded as a level that's crucial for the bull run to continue. Further confirmation of positive momentum would be seen at $60,000.
The world's biggest cryptocurrency is currently trading at a 28.5% discount to the all-time highs of $68,789.43 that were set on Nov. 10.